Understanding Nigeria’s review on IOCs export proceeds repatriation
International Oil Companies operating in Nigeria can repatriate 50 per cent of their export proceeds immediately or when required, while the remaining 50 per cent can be used to settle financial obligations in Nigeria. That’s according to the Central Bank of Nigeria in its circular on the review of terms on the repatriation of export proceeds by international oil companies. Titi Lawani, Head of Global Market Trading at RMB Nigeria joins CNBC Africa for more on this and insights on foreign portfolio investors activities in Nigeria.
Fri, 10 May 2024 15:22:06 GMT
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AI Generated Summary
- The Central Bank of Nigeria's circular now allows international oil companies to repatriate 50% of their export proceeds immediately, contributing to foreign exchange liquidity in the country.
- The pressure on the currency is expected to continue due to NDF maturities, but the Central Bank is anticipated to provide support, which could benefit foreign portfolio investors.
- The fixed income market in Nigeria has seen elevated rates to attract portfolio investors, with interest primarily focused on the short end of the curve.
The recent circular from the Central Bank of Nigeria regarding the revision of terms on the repatriation of export proceeds by international oil companies has sparked conversations and expectations within the financial landscape of Nigeria. The circular now permits international oil companies (IOCs) operating in Nigeria to repatriate 50% of their export proceeds immediately or as needed, with the remaining 50% to be utilized to settle financial obligations within the country. This move is aimed at enhancing foreign exchange liquidity within Nigeria, as highlighted by Titi Lawani, the Head of Global Market Trading at RMB Nigeria, in a recent interview with CNBC Africa. Lawani provided insights into the history and impact of these regulations on both IOCs and foreign portfolio investors (FPIs) in Nigeria. One of the key points discussed was the historical context behind the circular and its implications for IOCs. Lawani mentioned that discussions on eligible transactions for proceeds in domiciliary and export accounts date back to 2015, with clarifications provided by the Central Bank in various circulars over the years. The recent circular, issued in February 2024, now mandates that only 50% of export proceeds can be remitted to parent companies, with the remaining 50% to be retained in Nigeria to boost liquidity. This change allows for a portion of funds to enter the foreign exchange market, potentially unlocking significant inflows and positively impacting the market. Additionally, the conversation delved into the potential challenges and opportunities for FPIs in the Nigerian market. Lawani acknowledged the pressure on the currency due to upcoming non-deliverable forward (NDF) maturities totaling $1.3 billion, which could affect the exchange rate. Despite the short-term volatility and profit-taking activities influencing foreign flows, Lawani expressed optimism about the Central Bank's interventions to stabilize the currency and attract offshore investments. He emphasized that current market conditions could offer favorable entry points for investors seeking higher returns in the long term, despite the near-term uncertainties. Furthermore, the discussion extended to the fixed income market performance in Nigeria during the first half of the year. Lawani highlighted that elevated rates, averaging around 26%, aimed at attracting portfolio investors to the Nigerian market amid competition with other countries. The focus remains on shorter-term investments, with expectations of sustained high yields to continue attracting FPIs. Although interest in longer-duration bonds is currently limited, Lawani anticipates a shift as stability improves in the market. In conclusion, the regulatory changes pertaining to IOC export proceeds and the evolving dynamics in the foreign exchange and fixed income markets in Nigeria present a mix of challenges and opportunities for both industry players and investors alike. The ongoing developments underscore the importance of adaptability and strategic decision-making in navigating Nigeria's financial landscape amidst a backdrop of regulatory reforms and market uncertainties.